Michael Quinlan ’14
Greece’s debt continues to cause serious fiscal problems throughout the Eurozone, despite the European Union’s recent bailout to prevent the country from defaulting on its debts.
Greece’s debts and borrowing costs continue to reach record heights; economists and politicians worldwide believe their debts have reached unsustainable levels. In 2010, Greece’s budget deficit reached 13.6 percent, which is more than four times the maximum allowed by the European Union’s regulations.
In an effort to alleviate Greece’s increasing debts, the International Monetary Fund and members of the Eurozone, the 17 European countries that share the Euro as their common currency, initially bailed out Greece in May of 2010. Greece received the €110 billion bailout by accepting a series of austerity packages, which required the Greek government to reduce its spending and raise its national taxes to pay back creditors. These changes caused great dissent and hardship among Greek citizens.
However, this €110 billion bailout was not sufficient, and in July 2011, a second round of loans was approved. This bailout package, first proposed to total €109 billion, has since risen to €130 billion. In addition, this fall, Greece’s debt to private bondholders was cut by 50 percent.
Despite the bailout, Greece continues to suffer from high unemployment and debt rates, contributing to its ongoing economic recession. Experts predict that by the end of 2011, the debt-to-GDP ratio will reach 160 percent and unemployment will rise to 15 percent. Daily strikes persist and citizens remain skeptical that the bailout package will lighten their economic burdens. “They say the big bankers will pay for this, not the people … and we are turning the page because half our debt vanished. Who are they trying to fool?,” said one protester in Athens.
Many Greeks and other members of the European Union fear that the bailout package is merely postponing the inevitable: Greece defaulting on its loans. If Greece’s debts are not paid, laws proposed by states with strong economies, such as Germany, may push Greece out of the Eurozone and force them to adopt a different currency. If this were to happen, the value of the Euro would decrease significantly.
In addition, many believe that if Greece defaults on its debts, Italy, Ireland, and Portugal, members of the Eurozone who have also been bailed out by the European Union and International Monetary Fund, will do the same, further exacerbating the debt crisis of the Eurozone.